America's War on Crypto

The crypto industry recently held a Consensus 2023 industry event in Austin, Texas. It was a 3 day event featuring numerous panels/sessions with speakers/representatives from both crypto and non-crypto companies/industries as well as representatives from various government regulators.

The event covered many topics including:

• efforts by large, mainstream companies like PepsiCo that are looking for opportunities in the crypto space
• a merger of traditional finance with blockchain governance
• plans by large banks to innovate in tokenizing traditional-financial assets

Crypto isn't just the wild west purview of money launderers and dark web ne'er do wells. There is serious financial/corporate activity happening in the crypto world now.

Valid Criticisms or Propaganda?​

Anti-crypto voices have tried to vilify the crypto industry on environmental concerns - claiming that crypto consumes too much energy. However, like most nascent technologies, they evolve with innovation when there is sufficient interest.

Bitcoin (BTC) was the first crypto coin and it was built on a "proof of work" model. This model is energy intensive by design and it also didn't scale well for handling a large volume of transactions. So, "proof of stake" crypto were developed that were orders of magnitude more efficient and scalable. Ethereum (ETH) transitioned from a proof of work model to a proof of stake model for this reason - and it's still not done being developed. Stellar (XLM) was developed on another "proof of agreement" model that claims to be several more orders of magnitude more efficient than proof of stake models - and even more energy efficient than traditional finance like credit cards:

Electricity Consumption of a Distributed Consensus Algorithm | LUP Student Papers

The efficiency of proof of work and proof of stake based cryptos are still being improved in many cases by the development of new technologies like parallel blockchains (aka parachains, cross chains, etc.) that distribute transaction loads and zero knowledge proofs (which could be very significant for Bitcoin in particular).

In addition to the developers of various crypto projects being sensitive to the energy costs from a design standpoint, the decentralized network of node operators (and bitcoin miners) that implement the crypto protocols (than operate the computer servers on the network) are also increasingly using more green energy sources:

... There has also been a shift toward using more renewable energy sources to power cryptocurrency mining. One 2020 study found that around 39% of the energy consumed by PoW cryptocurrencies is from renewable energy sources, up from 28% reported in a previous study. This percentage is likely to rise as renewables become more affordable in the future.
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Biden's 30% Crypto Electricity Tax May Be Too Blunt A Solution

In his latest budget for Fiscal Year 2024, President Biden has proposed a new tax on electricity use from cryptocurrency mining.

www.forbes.com

Crypto Threatened by Government Hostility​

The Biden administration has been very open about their hostility to the crypto industry:

It’s a safe bet that 80-year-old President Biden—like his 76-year-old predecessor—has never bought Bitcoin, used a stablecoin, or tried out Web3. But that didn’t stop Biden’s underlings at the White House from issuing a blog post on Friday, decrying crypto as predatory and dangerous. The document reads like a diatribe and even has a whiff of moral panic—as if Biden had instructed the makers of Reefer Madness to turn their attention to digital currency.
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The Biden White House just rolled out some of its most anti-crypto language yet. They may regret it

The White House rolled out an aggressive anti-crypto stance that could come to bite Democrats in the long term.

fortune.com

The White House Council of Economic Advisers delivered a 35-page takedown of the idea that digital assets like Bitcoin are useful as an alternative to government-backed currency, the claim that crypto’s underlying distributed ledger technology could have some utopian application, and the notion that it could serve as a hedge against inflation.

“Although the underlying technologies are a clever solution for the problem of how to execute transactions without a trusted authority, crypto assets currently do not offer widespread economic benefits,” the council writes. “They are largely speculative investment vehicles and are not an effective alternative to fiat currency. Also, they are too risky at present to function as payment instruments or to expand financial inclusion.”

The extended crypto criticism, which fills one chapter in a book-length annual report the White House sends to Congress each year, represents a stark change in tone from President Joe Biden’s administration.

One year ago, Biden signed an executive order asking federal agencies to look at ways of curtailing the risks of crypto without stifling “financial innovation.” This week’s report makes clear the White House thinks crypto can’t innovate much besides the same kinds of financial disasters that prompted Congress to regulate the banking industry a century ago.
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White House Slams Crypto As Offering 'No Widespread Economic Benefits'

The Biden administration has soured on crypto after several high-profile industry failures.

www.huffpost.com

Crypto faces similar hostility within the legislative branch from a group of Senators led by Elizabeth Warren.

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Now, influential Democrat senator Elizabeth Warren has signaled she's "building an anti-crypto army" as part of her re-election campaign following a warning from crypto lobby group Coin Center that a crackdown on TikTok could pave the way for a bitcoin ban.

"I’m in this fight to put our government on the side of working families," the former U.S. presidential hopeful posted to Twitter, embracing a quote from a recent Politico profile that said she's "building an anti-crypto army."

Warren, who is on the Senate Banking Committee that oversees the U.S. Securities and Exchange Commission (SEC), has been at the vanguard of a slew of anti-bitcoin and crypto bills that have been introduced over the last year.
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Elizabeth Warren Is Building An ‘Anti-Crypto Army’—Feeding Serious U.S. Bitcoin Ban Warnings

Bitcoin and crypto companies are struggling with the growing possibility that the U.S. is trying to "quietly" ban bitcoin...

www.forbes.com

Three Pronged Attack​

The American government is currently employing a three pronged attack on the crypto industry in an attempt to suffocate it.

Prong number one makes headlines in most news media and involves the SEC purposefully maintaining vague guidance and attacking companies with lawsuits. Their behavior has been so egregious that it has drawn dissent from their own ranks and from Congress. The SEC has apparently been tasked to be the Biden administration's Shawshank warden Samuel Norton in obtusely responding to the crypto industry. There really isn't any other way to explain SEC chair Gensler's blatant hypocrisy.

Prong number two has flown under the radar of most news media and involves the revival of Operation Choke Point - an Obama era program that aimed to de-bank lawful industries that the administration disfavored. The operation was shut down circa 2017, but is now making a comeback targeting the crypto industry. Cooper & Kirk, a law firm that sued FDIC, OCC & Fed over the original Operation Choke Point, published a detailed summary of Operation Choke Point 2.0.

Former Congressman Barney Frank, a board member of Signature Bank, alleged that the bank was solvent and seized by regulators to debank it's crypto clients. The move sparked contagion in the regional banking industry and prompted some members of Congress to question the FDIC's actions. When the FDIC solicited bids for Signature bank, they split off Signature's crypto clients effectively de-banking them.

The third prong involves legislation and executive orders designed to handcuff the crypto industry including increasing taxes on bitcoin miners and regulations.

Stablecoins - Kind of a Big Deal​

Stablecoins, such as US Dollar Coin (USDC) and Tether (USDT), are cryptocurrencies that are backed by national currencies. They are essentially tokenized forms of the underlying legal tender they represent. Unfortunately for the Federal reserve, US Treasury Dept., etc., they enable transactions that do not process through the US banking system. As such, they have drawn particular interest from the Biden administration.

Stablecoins provide an open door for global entities to conduct dollar denominated transactions that could bypass US sanctions. They provide an opportunity for people in nations with high inflation to save money in dollar denominated currency that bypasses official dollar exchanges (or prohibitions). The adoption and growth of stablecoins would appear to be a direct threat to any possible plans for a Central Bank Digital Currency (CBDC).

Futile and Stupid Gesture​

The Biden administration's effort are provoking a chilling effect of the domestic crypto industry and forcing much of America's leadership in innovation and development to expatriate to friendlier shores. What the Biden administration does not appear to realize is that crypto is global. They are not going to be able to choke the global industry with an iron fist. Pandora's box has been opened. The crypto industries will continue to innovate and grow with new financial and commercial applications. It will be a true shame if America abdicates their position in leading the charge.

 

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The SEC Takes on Dealer Definitions

The U.S. Securities and Exchange Commission published a new definition for securities dealers, capturing crypto.

The U.S. Securities and Exchange Commission has put the crypto industry on notice in what may become a whole new front in the sector's legal war with the agency. When the commission approved its new approach to defining securities dealers last week, it did so with full knowledge that it could shake the foundations of decentralized finance (DeFi).

And the regulator officially didn't care.

The new rule could be a blow for U.S. DeFi, but it's more than that. It also suggests the commission's mindset when it comes to policy that affects crypto, and there's more of it coming. Around the same time the agency proposed the dealer rule, it also suggested it wanted to overhaul its definition of what makes an exchange. That proposal was clear in its inclusion of crypto platforms in that expanded category, suggesting the agency is trying to formalize oversight of digital assets firms by making them comply with the same rules as all other securities exchanges.

More:

https://www.coindesk.com/policy/2024/02/13/the-sec-takes-on-dealer-definitions/

 

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Emmer bringing the blowtorch to Warren's dishonesty.

 

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Sen. Warren got pranked:

If you ever wanted confirmation that politicians do not always read the documents they sign, look no further than Sen. Elizabeth Warren. Recently, an anonymous Bitcoiner pranked the Senator from Massachusetts, who has built a brand around supposedly helping the financially unprivileged, by getting her to sign a document commemorating Satoshi Nakamoto.

The U.S. government, apparently, runs a “flag program” via the Architect of the Capitol, which flies commemorative flags over the Capitol building in Washington D.C. As the government site notes: members of Congress are able to nominate individuals or groups deserving of this special acknowledgement.

Over 100,000 flag requests are fulfilled each year, a number that suggests not everything is always properly vetted. Bitcoin Magazine broke the news that on Dec. 18, 2023, Sen. Warren honored the creator of Bitcoin for the accomplishment of creating the first “truly inclusive financial system.”
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https://www.coindesk.com/consensus-magazine/2024/02/16/what-the-warrensatoshi-flag-moment-means/?utm_medium=referral&utm_source=rss&utm_campaign=headlines

 

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The battle for Bitcoin is heating up at the state level in the U.S. The Blockchain Basics Act, a series of regulations focused on enshrining various fundamental cryptocurrency rights in different states, has been introduced in Ohio, South Carolina, and Mississippi. In Ohio, the initiative was introduced by Rep. Steve Demetriou (HB406), who also introduced an anti-central bank digital currency (CBDC) bill in 2023. In South Carolina, the initiative was introduced by Sen. Danny Verdin (S1039), and in Mississippi, it was introduced by Rep. Jody Steverson (HB1214).

The bills are very similar and seek to guarantee the ability of the people of each state to self-custody and trade cryptocurrency without any undue restrictions, mine bitcoin and other cryptocurrencies, and run nodes to support the decentralization of crypto networks, among other determinations.

Dennis Porter, CEO and co-founder of the Satoshi Action Fund, a nonprofit organization that seeks to educate lawmakers about the importance of passing favorable crypto regulation, described this event as a ‘big deal’ for Bitcoin users in the country. He stated that it represented an opportunity to resist powerful people who are attempting to restrict the freedom to use Bitcoin, such as Sen. Elizabeth Warren.
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Blockchain Basics Act Introduced in Ohio, South Carolina, and Mississippi – Regulation Bitcoin News

The Blockchain Basics Act has been introduced in three more U.S. states: Ohio, South Carolina, and Mississippi.

news.bitcoin.com

 

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This propaganda gets amplified in the media and by certain bad faith actors in DC:

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For too long, the world has had to endure the fallout of subpar academic research on bitcoin mining’s energy use and environmental impact. The outcome of this bullshit research has been shocking news headlines that have turned some well-meaning people into angry politicians and deranged activists. So that you never have to endure the brutality of one of these sloppy papers, I’ve sacrificed my soul to the bitcoin mining gods and performed a full-scale analysis of a study from the United Nations University, published recently in the American Geophysical Union’s Earth’s Future. Only the bravest and hardest of all bitcoin autists may proceed to the following paragraphs, the rest of you can go back to watching the price chart.

Your soft baby ears might have screamed with shock at the strong proclamation in my lede that the biggest and squeakiest research on bitcoin mining is bullshit. If you’ve ever read Jonathan Koomey’s 2018 blog post on the Digiconomist–also known as Alex deVries, or his 2019 Coincenter report, or Lei et al. 2021, or Sai and Vranken 2023, or Masanet et al. 2021, or… Well, the point is that there’s thousands of words already written that have shown that bitcoin mining energy modeling is in a state of crisis and that this is not isolated to bitcoin! It’s a struggle that data center energy studies have faced for decades. People like Jonathan Koomey, Eric Masanet, Arman Shehabi, and those nice guys Sai and Vranken (sorry, we’re not yet on a first-name basis) have written enough pages that could probably cover the walls of at least one men’s bathroom at every bitcoin conference that’s happened last year, that show this to be true.

My holy altar, which I keep in my bedroom closet, is a hand-carved, elegant yet ascetic shrine to Koomey, Masanet, and Shehabi for the decades of work they’ve done to improve data center energy modeling. These sifus of computing have made it all very clear to me: if you don’t have bottom-up data and you rely on historical trends while ignoring IT device energy efficiency trends and what drives demand, then your research is bullshit. And so, with one broad yet very surgical stroke, I swipe left on Mora et al. (2018), deVries (2018, 2019, 2020, 2021, 2022, and 2023), Stoll et al. (2019), Gallersdorfer et al. (2020), Chamanara et al. (2023), and all the others that are mentioned in Sai and Vranken’s comprehensive review of the literature. ...
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On a somewhat bearish October afternoon, I got tagged on Twitter/X on a post about a new bitcoin energy use study from some authors affiliated with the United Nations University (Chamanara et al., 2023). Little did I know that this study would trigger my autism so hard that I would descend into my own kind of drug-induced-gonzo-fear-and-loathing-in-vegas state, and hyper-focus on this study for the next four weeks. While I am probably exaggerating about the heavy drug use, my recollection of this time is very much a techno-colored, toxic relationship-level fever dream. Do you remember Frank from the critically acclaimed 2001 film, Donnie Darko? Yeah, he was there, too.

As I started taking notes on the paper, I realized that Chamanara et al.’s study was really confusing. The paper was perplexing because it's a poorly designed study that bases its raison d’etre entirely on de Vries and Mora et al. It uses the Cambridge Center for Alternative Finance (CCAF) Cambridge Bitcoin Energy Consumption Index (CBECI) data without acknowledging the limitations of the model (see Lei et al. 2021 and Sai and Vranken 2023 for an in-depth analysis of the issues with CBECI’s modeling). It conflates its results from the 2020-2021 period with the state of bitcoin mining in 2022 and 2023. The authors also relied on some environmental footprint methodology that would make you think it was actually possible for you to shrink or grow a reservoir depending on how hard you Netflix and chill. Really, this is what Obringer et al. (2020) inferentially conclude is possible and the UN study cites Obringer as one of its methodological foundations. By the way, Koomey and Masanet did not like Obringer et al.’s methodology, either. I’ll light another soy-based candle at the altar in their honor.
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More (very long w/link to even longer full report):

https://bitcoinmagazine.com/sponsored/mining-misinformation-how-the-united-nations-university-misrepresented-data-to-exaggerate-bitcoins-environmental-footprint

 

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SEC’s Unlawful Targeting of Digital Asset Industry Challenged in New Lawsuit From Startup LEJILEX and Crypto Freedom Alliance of Texas​

Texas lawsuit seeks confirmation that most digital asset sales are not subject to SEC enforcement

Lawsuit follows years of overreaching SEC enforcement actions that have undermined the digital asset industry and American technological innovation

LEJILEX’s proactive approach protects the company from erroneous SEC enforcement actions prior to initiation of operations​

February 21, 2024 11:30 AM Eastern Standard Time

FORT WORTH, Texas--(BUSINESS WIRE)--LEJILEX, an emerging digital asset company, and Crypto Freedom Alliance of Texas (“CFAT”), a nonprofit trade association that advocates for the responsible development of digital asset policies in Texas, filed a complaint today against the Securities and Exchange Commission (“SEC”), challenging the agency's unlawful assertion of regulatory authority over practically all digital asset transactions in Texas and the United States. This case, filed in anticipation of CFAT member company LEJILEX launching a new digital asset trading platform, seeks confirmation that transactions in digital assets on this platform are not sales of securities that are subject to SEC registration requirements. In doing so, they hope to end years of misguided SEC policy that is actively harming law-abiding American businesses.

In the complaint, filed today in the United States District Court for the Northern District of Texas, LEJILEX and CFAT – represented by Clement & Murphy, PLLC and Duane Morris, LLP – outline how the SEC has usurped near-total jurisdiction over the digital asset industry, despite several SEC Commissioners themselves acknowledging that Congress has never granted their agency authority to do so.

The SEC not only lacks legal authority to regulate most digital asset transactions, but has proven it is unprepared to respect the limits Congress has put on its jurisdiction or even to develop and enforce common sense and consistent regulations for this emerging industry, relying instead on regulation via ad hoc enforcement actions. The SEC’s unlawful, unpredictable approach has created an environment in which companies like LEJILEX are unable to operate without fear of being subject to SEC enforcement actions – leaving a trillion-dollar industry and law-abiding individuals in a state of uncertainty while diminishing the United States’ leadership in this critical sector.

As the complaint explains, despite repeated pleas from industry participants, the SEC has refused to provide “any definitive regulation that would afford industry participants clear ex ante guidance” on what digital assets transactions fall within its scope. Instead, the SEC has used one-off enforcement actions to assert an “overly broad view of its own authority” – a view that “fails as a matter of statutory text, history, precedent, and common sense, and would allow the SEC to unilaterally seize control over a trillion-dollar industry without anything like the clear statutory mandate necessary to justify such a massive expansion of agency power.”

To justify their ad hoc enforcement actions, the SEC claims that practically all digital assets qualify as securities under the SEC’s purview because they represent “investment contracts,” a catch-all category within the definition of security. In this lawsuit, the plaintiffs seek a judicial declaration that sales of digital assets like the ones that would take place on LEJILEX’s platform are not securities transactions. As the plaintiffs’ complaint explains, these transactions do not fit the definition of "investment contracts"; if they did, the SEC’s authority would be virtually limitless, covering any purchase of an asset that might appreciate in value. For example, the SEC’s view of its own authority would apparently mean that buying a pair of limited-run Nike sneakers with the intention of reselling them, while expecting that Nike would continue working to increase demand for those coveted shoes, would be enough to turn those sneakers into securities, their resale into a securities transaction subject to regulation by the SEC, and any auction house or consignment store that helps resell them into an unregistered securities exchange.

“We wish we were launching our business instead of filing a lawsuit, but here we are,” said Mike Wawszczak, Co-Founder of LEJILEX. He continued, “The SEC’s rogue enforcement actions targeting our industry have paralyzed those of us who just want to build lawful businesses and technologies. Fear of rogue enforcement should not be a thing entrepreneurs are forced to experience. We hope our action encourages the SEC to reconsider its regulatory approach, and we welcome them to work with us and our industry to ensure the most important technologies of the future are built here in America, under American laws, consistent with American values.
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SEC’s Unlawful Targeting of Digital Asset Industry Challenged in New Lawsuit From Startup LEJILEX and Crypto Freedom Alliance of Texas

LEJILEX, an emerging digital asset company, and Crypto Freedom Alliance of Texas (“CFAT”), a nonprofit trade association that advocates for the respon

www.businesswire.com

 

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US Banks lobbying for greater access to the crypto markets. Won't be long before they want to transform into full fledged crypto exchanges.

Bold emphasis is mine:

After years of shunning the crypto industry and blocking access to exchanges, major banks and financial institutions in the United States have now asked the Securities and Exchange Commission (SEC) to re-adjust the definition of crypto assets to allow them to provide crypto-related services to clients.

According to a Feb. 14 letter addressed to SEC Chair Gary Gensler, a trade group coalition comprising the Bank Policy Institute, American Bankers Association, Financial Services Forum and Securities Industry and Financial Markets Association have asked the regulator to “consider targeted modifications to Staff Accounting Bulletin No. 121 (“SAB 121”) to address recent policy developments and the challenges that SAB 121 has posed for U.S. banking organizations since it was issued on March 31, 2022.”
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“Moreover, the Associations have highlighted that the on-balance sheet requirement, coupled with the overly-broad definition of ‘crypto-asset’ in SAB 121, will have a chilling effect on banking organizations’ ability to develop responsible use cases for distributed ledger technology (DLT) more broadly,” they added.
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More:

Banks lobby SEC to ease crypto custody rules for Bitcoin ETFs, DLT

The Kitco News Team brings you the latest news, videos, analysis and opinions regarding Precious Metals, Crypto, Mining, World Markets and Global Economy.

www.kitco.com

Regarding the bolded statement - that was the SEC's goal. It's another prong in the war. The SEC has been doing a lot of dirty (bad faith) work in this effort.

5 page .PDF:

https://www.aba.com/-/media/documents/letters-to-congress-and-regulators/jointclsec20240214.pdf?rev=ae41675e5fab43af933be0b27879d713

 

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This propaganda gets amplified in the media and by certain bad faith actors in DC:
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Case in point:

The Texas Blockchain Council (TBC) and Riot Platforms (RIOT), one of the largest crypto miners in the state, sued the U.S. Department of Energy for "illegally" demanding information from many of the council's members, including Riot, according to a Thursday court filing.

The TBC and Riot also sued Secretary of Energy Jennifer M. Granholm, the U.S. Energy Information Administration (EIA) and the Office of Management and Budget (OMB) and other officials.

"This is a case about sloppy government process, contrived and self-inflicted urgency, and invasive government data collection," the filing says.

The civil lawsuit says the EIA requested an emergency review and clearance from the OMB of a planned collection of proprietary energy information from the mining companies. The EIA determined that if such a collection were not authorized, public harm was reasonably likely. That's because the bitcoin (BTC) price's recent rally would incentivize more mining activity, leading to high electricity demand just as a major cold snap hit parts of the country.

The EIA is demanding the information by Feb. 23 "under the explicit threat of criminal fines and civil penalties." That doesn't follow the Paperwork Reduction Act’s standard clearance processes, which requires giving companies 60-day notice, the filing said.

If the court does not intervene, the companies will be "immediately and irreparably harmed by being forced to divulge confidential, sensitive, and proprietary information," the filing said.

"The EIA's actions represent an alarming precedent of government intrusion into private industry operations without just cause or proper process," TBC President Lee Bratcher said in a statement.
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https://www.coindesk.com/policy/2024/02/23/texas-blockchain-council-riot-platforms-sue-dept-of-energy-omb-over-emergency-survey/?utm_medium=referral&utm_source=rss&utm_campaign=headlines

 

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DOE has backed down:

Legal Action Forces US Energy Department to Suspend Crypto Mining Investigation – Mining Bitcoin News

The Energy Information Administration (EIA), has put a temporary hold on its bitcoin mining survey and quarantined the data gathered to date.

news.bitcoin.com

 

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... Kraken employed similar arguments to the ones made by Coinbase and Binance.US in their own motions to dismiss. We haven't gotten many definitive rulings on this argument, and we won't for a while. But one thing is clear: There's a very good chance that the Supreme Court of the United States might end up involved at some point.

The Coinbase case is in the Southern District of New York, Binance.US is in the District of Washington and Kraken is in the Northern District of California. Another company, going by the name Legit.Exchange, just filed suit against the SEC in the Northern District of Texas. The chances of four different district judges in four different districts finding a consensus is a bit slim. Assuming the parties involved appeal whatever rulings come out, we're also looking at a few appeals courts that will weigh in.
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https://www.coindesk.com/policy/2024/02/23/looking-at-krakens-motion-to-dismiss-an-sec-lawsuit/?utm_medium=referral&utm_source=rss&utm_campaign=headlines

Seems likely that SCOTUS will eventually have to resolve split judgements on the same issues from different courts.

 

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They are getting roasted in the comments for sending letters that get ignored instead of taking meaningful action.

 

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Well I'll be... They actually did something.

The House Financial Services Committee voted to advance a resolution that would disapprove of the Securities and Exchange Commission's Staff Accounting Bulletin 121.

SAB 121 directs regulated financial institutions to mark customers' crypto assets on their own balance sheets.

The full House and Senate must vote on the resolution before it would take effect; if it does take effect, it would block the SEC from issuing similar guidance in future.
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More:

https://www.coindesk.com/policy/2024/02/29/us-house-panel-seems-poised-to-disapprove-of-controversial-sec-custody-guidance/

 

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Today, the Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), announced the following hearing:

Digital Assets, Financial Technology and Inclusion Subcommittee Hearing Entitled: “Bureaucratic Overreach or Consumer Protection? Examining the CFPB’s Latest Action to Restrict Competition in Payments”

Time: 9:00 AM ET
Date: Wednesday, March 13, 2024
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HEARING NOTICE: Subcommittee on Digital Assets, Financial Technology and Inclusion | Financial Services Committee

financialservices.house.gov

 

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Ohio's U.S. Senate race may be the biggest congressional contest this year for the crypto industry, now pitting a digital assets booster against Sen. Sherrod Brown (D-Ohio), the sitting Senate Banking Committee chairman who has stood in the way of the development of regulatory legislation.

Bernie Moreno, an Ohio businessman and crypto enthusiast who founded a blockchain startup that focuses on property titles, won the Republican nomination Tuesday in the battleground state where Brown has previously held his ground, despite most of its statewide offices being held by Republicans. Moreno carried the endorsement of former President Donald Trump, who is again his party's standard-bearer in the presidential election.

Brown has been a vocal critic of the digital assets sector, especially the frauds and company implosions that have cost consumers money. He's expressed some interest in moving legislation that would deal with the illicit use of crypto, but not yet in bills that would set up rules of the road for the industry.

If Brown loses, it not only changes the leadership of the committee, but it may also change the party with majority status in the Senate. In this session, the Senate has teetered at a 50-50 split that's broken to the Democrats' benefit by the vice president. It only takes one seat to shift and grant Republicans the majority, which would also give the party control of all the chairs (and the agendas) of the committees that would need to pass crypto bills.
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https://www.coindesk.com/policy/2024/03/20/crypto-fan-won-ohio-senate-primary-that-could-alter-the-industrys-us-destiny/

 

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Rep. Emmer still spitting fire.

Financial Services, Agriculture Republicans Demand SEC Clarify Position Regarding Prometheum’s Custody of Ethereum’s Ether​

Lawmakers are urging Chair Gensler to clarify the SEC’s position with respect to a Special Purpose Broker Dealer’s ability to custody non-securities

Washington, March 26, 2024 -

Following Prometheum’s announcement that its subsidiary, Prometheum Capital, will provide custody services for the digital asset, Ether (ETH), Republicans on the House Financial Services Committee and House Committee on Agriculture, led by Chairmen Patrick McHenry (NC-10) and Glenn “GT” Thompson (PA-15) and Reps. French Hill (AR-02), Dusty Johnson (R-SD), Tom Emmer (MN-06), and Warren Davidson (OH-08), sent a letter to Securities and Exchange Commission (SEC) Chair Gary Gensler. The lawmakers are demanding that his agency clarify the SEC’s position with respect to a Special Purpose Broker Dealer’s (SPBD) ability to custody non-security digital assets, the SEC’s willingness to address SPBD non-compliance, the regulatory classification of ETH, and the SEC’s position regarding Prometheum’s announcement.

The SEC and the CFTC have an extensive record of identifying ETH as a non-security digital asset. In the letter, lawmakers highlight that the SEC’s current regime, grounded in this precedent, does not permit SPBD custody of non-security digital assets and warn that allowing Prometheum to proceed could have irreparable consequences for the digital asset markets.

Read the lawmakers’ full letter to Chair Gensler here and key excerpts below:

“We write to express our concerns regarding Prometheum, Inc.’s (Prometheum) recent announcement that its subsidiary, Prometheum Ember Capital LLC (Prometheum Capital), a Financial Industry Regulatory Authority (FINRA) approved Special Purpose Broker-Dealer (SPBD), will provide custody services for Ethereum’s token, Ether (ETH), later this month to institutional clients. In particular, we are concerned by the lack of transparency in the Securities and Exchange Commission’s (SEC) SPBD regime and the SEC’s failure to address Prometheum’s intent to custody an asset that the SEC and the Commodity Futures Trading Commission (CFTC) have recognized as a non-security digital asset. We urge you to clarify the SEC’s position with respect to a SPBD’s ability to custody non-securities, willingness to address SPBD non-compliance, regulatory classification of ETH, and position regarding Prometheum’s announcement.

“As you are aware, the agencies have an extensive public record identifying ETH as a non-security digital asset. There are multiple regulatory actions grounded in that position. Yet now, we are faced with an alarming scenario in which a SPBD has announced that it intends to offer custodial services for ETH under a regime that does not permit such activity. This action, if allowed to proceed, could have irreparable consequences for the digital asset markets.
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“Despite your insistence that most digital assets are ‘digital asset securities,’ that term continues to be undefined. Other regulators, intermediaries, and market participants disagree with your assertions, and have struggled to identify which digital assets are digital asset securities. Moreover, the SEC’s failure to propose a rule or provide comprehensive guidance that provides clear rules for the digital asset marketplace regarding asset classification has only exacerbated the uncertainty in the digital asset ecosystem. Compounding the uncertainty, the SEC has engaged in multiple enforcement actions, accusing certain digital asset trading platforms of failing to register as brokers, clearing agencies, and national securities exchanges (NSE) because they are transacting in digital asset securities.
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“Despite this history recognizing ETH as a non-security digital asset, you have consistently refused to acknowledge that ETH is not a security. In your March 2023 testimony before the House Committee on Financial Services you declined to answer multiple questions about whether ETH should be considered a commodity. Your unwillingness to clarify the treatment of ETH only exacerbates the confusion and uncertainty regarding ETH’s classification as demonstrated by the Prometheum announcement.
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“Your unwillingness to identify which digital assets are so-called digital asset securities has sown confusion even for SEC regulated entities. The SEC established temporary frameworks for broker-dealers to engage with digital asset securities both to facilitate trading as an alternative trading system (ATS) and to provide custodial services which were in place well before your arrival. In September 2020, the SEC’s Division of Trading and Markets issued a no-action letter (NAL) to FINRA establishing a framework for a registered broker-dealer to operate an ATS that trades digital asset securities, under certain conditions.
…

“In order for Prometheum Capital to make its announcement that it will custody ETH and remain in compliance with the SEC’s SPBD regime, Prometheum Capital should have determined that ETH is a digital asset security and that the offer and sale of ETH is either registered as a security or qualifies for an exemption. However, ETH has not been registered as a security with the SEC, nor has the SEC indicated that the offer or sale of ETH satisfies the requirements of any exemption. Thus, it remains unclear how Prometheum intends to offer certain digital assets through its ATS or to implement procedures congruent with the SPBD framework. To date, Prometheum Capital has not provided any SPBD custodial services nor has Prometheum ATS operated as an ATS.
…

“The regulatory treatment of ETH is not solely a matter of importance to the SEC, it directly implicates the CFTC and the commodity futures markets, as well. If the SEC determines that ETH is a digital asset security, CFTC registered commodity derivative exchanges may no longer be able to list and offer ETH Futures for trading as commodity futures products. The consequences of exchanges no longer offering ETH derivatives could have significant implications for existing ETH market participants. Not only would market participants lose access to an essential risk management tool, but such an action could also imperil the existing approved ETFs and result in significant price dislocation across the ETH market. More problematic, if the SEC determines ETH to be a digital asset security, then existing CFTC registered entities and registrants are potentially violating securities laws by offering security futures products absent registration pursuant to the security futures framework.

“The negative repercussions of the SEC implicitly or directly classifying ETH as a digital asset security will cascade throughout the digital asset marketplace both in the short and long term. The immediate impact on the ETH commodity derivatives markets is apparent. However, the broader implications for the digital asset markets may be that absent legislation, there will never be regulatory certainty upon which one can offer digital asset derivatives in the United States. This would have a chilling effect on U.S. digital asset markets, to the detriment of Americans who benefit from the robust U.S. digital asset markets and federal regulation of those markets.”

Financial Services, Agriculture Republicans Demand SEC Clarify Position Regarding Prometheum’s Custody of Ethereum’s Ether | Financial Services Committee

financialservices.house.gov

 

[pmbug]

Coinbase, one of the leading cryptocurrency exchanges, has achieved a significant victory in an ongoing lawsuit. The U.S. Court of Appeals for the Second Circuit has ruled in favor of Coinbase, confirming that the secondary sales of cryptocurrencies on its platform do not violate the Securities Exchange Act.

The court’s decision affects a nationwide group of people who traded tokens on Coinbase from Oct. 8, 2019, to March 11, 2022. At the heart of the dispute was whether Coinbase’s traded cryptocurrencies met the criteria for securities.
...

https://cointelegraph.com/news/coinbase-cleared-in-lawsuit-over-crypto-transactions

SEC takes it on the chin again. Of course they don't really care though. The legal tussle is the punishment in their bad faith war on crypto.

 

[WinkWink]

...
SEC takes it on the chin again. ...

 

[pmbug]

...
Put another way, in 1Q24, fintech partner banks were approximately 16 times more likely than other banks to receive a formal enforcement action.

When you consider that these banks make up only about 3% of all U.S. banks by number, and even less by assets, that’s a crazy amount of enforcement attention. Even crazier when you consider the prevalence of interest rate risk management, liquidity risk management, and capital adequacy challenges in the mainstream of the U.S. banking industry.
...

Konrad Alt on LinkedIn: The data are in. In 1Q24, fintech partner banks drew fully 35.3% of all… | 18 comments

The data are in. In 1Q24, fintech partner banks drew fully 35.3% of all formal enforcement actions brought by the OCC, FDIC and Federal Reserve. That’s up… | 18 comments on LinkedIn

www.linkedin.com

 

[Peter89]

So, Operation CP2 is still on

 

[Peter89]

A warrior and a hero

 

[pmbug]

...
In response to the Treasury Department’s requests, a new bill called the ENFORCE Act is being floated to expand existing money laundering rules into the crypto sector even more harshly than it is applied to traditional fiat currencies.

It would apply to cryptocurrency custodians, money transmitters, and exchanges but would thankfully exempt any services that provide only non-custodial and peer-to-peer services.

The proposed draft, authored by Sens. Thom Tillis (R-NC) and Bill Hagerty (R-TN), would require digital asset institutions to maintain robust anti-money laundering programs to ensure compliance with security measures and verify all customer information.

It would also require filing Suspicious Activity Reports with the Financial Crimes Enforcement Network for any “suspicious transaction that it believes is relevant to the possible violation of any law or regulation,” beginning at $2,000. This overly broad definition extends to any crypto transactions that “serve no business or apparent lawful purpose” as determined by any crypto exchange, and they would be legally required to withhold information of this report from the customer.

While this bill is much less harsh than similar proposals from anti-crypto firebrand Sen. Elizabeth Warren, it would provide stricter rules and procedures for crypto companies than the traditional banking sector.

For the average American consumer and user of cryptocurrencies on custodial services, that means there would be more scrutiny and surveillance at a smaller threshold on Coinbase than Bank of America.

Rather than embracing the permissionless innovation that Bitcoin and its cryptocurrency offspring provide, these rules would force yet more financial surveillance and regulatory compliance on the next iteration of digital money, artificially choking the growth of this industry.

It would also cause even more Americans to be caught up in the dragnet of “de-banking” for crypto, as institutions would rather cut off customers’ access to their services rather than comply with the unreasonable requirement of Suspicious Activity Reports for transactions above a small threshold, as we already see in the traditional banking system.

Because these reports have no inherent justification or process, except for the broad situational processes outlined in the Bank Secrecy Act and the Anti-Money Laundering Act, many bank customers have had their accounts closed or suspended without due process. Many are likely to be minorities, the underbanked, and politically active or religious groups.

This measure, applied to cryptocurrencies at a laughable limit of $2,000 — which exceeds the average rent paid in several states — demonstrates the government’s willingness to restrict crypto activity for law-abiding citizens not suspected of any formal crime.

Along with the mounting financial regulations that compel institutions to restrict access to Americans both at home and internationally, this bill means that citizens who wish to participate in the crypto sector risk being denied actively.
...

More:

The feds are trying to stifle Bitcoin and crypto with draconian new regulations | Blaze Media

Should regulations aimed at halting the financial activity of alleged criminals and terrorists be vastly expanded to include cryptocurrencies and firms that use them? Could this potentially harm entrepreneurial spirit and consumer freedom to deal in digital assets?Those were the questions asked...

www.theblaze.com

Surprising to see that the bill is a Republican measure. It's usually the Democrats that are hostile to decentralized crypto. America is supposed to be the good guy fighting for liberty and goodness. Seems folks in DC don't see it that way.

 

[pmbug]

Bitcoin (BTC) is increasingly serving as a critical channel for cross-border financial flows amid global financial instability, according to a new report by the International Monetary Fund (IMF).

The report — called “A Primer on Bitcoin Cross-Border Flows” — sheds light on how the decentralized nature of Bitcoin is being leveraged to bypass traditional banking systems, especially in regions experiencing economic distress or strict capital controls.

According to the IMF, residents of countries with restrictive financial regulations are turning to Bitcoin to move capital across borders more freely.
...

More:

IMF says Bitcoin has become necessary financial tool for preserving wealth amid financial instability

Bitcoin (BTC) is increasingly serving as a critical channel for cross-border financial flows amid global financial instability, according to a new report by the International Monetary Fund (IMF). The report — called “A Primer on Bitcoin Cross-Border Flows” — sheds light on how the decentralized...

cryptoslate.com

The report is a 43 page .PDF and is available from this page (free):

A Primer on Bitcoin Cross-Border Flows: Measurement and Drivers

The rapid growth of crypto assets raises important questions about their cross-border usage. To gain a better understanding of cross-border Bitcoin flows, we use raw data covering both on-chain (on the Bitcoin blockchain) and off-chain (outside the Bitcoin blockchain) transactions globally. We...

www.imf.org

Decentralized crypto is a tool for financial liberty and governments don't like that.

 

[Peter89]

Decentralized crypto is a tool for financial liberty and governments don't like that.

Amen!

 

[pmbug]

Consensys, one of the main supporters of the Ethereum network, claims the U.S. Securities and Exchange Commission (SEC) is attempting a power grab over Ethereum (ETH), the second-largest blockchain by market capitalization. And so, as natural, the Ethereum development company is suing, citing regulatory overreach.

“The U.S. Securities and Exchange Commission seeks to regulate ETH as a security, even though ETH bears none of the attributes of a security – and even though the SEC has previously told the world that ETH is not a security, and not within the SEC’s statutory jurisdiction,” according to the lawsuit filed in a Texas court on Thursday.

Over-and-above Consensys’ lawsuit is the growing trend of U.S. crypto companies and organizations willing to fight back against what they see as overzealous regulation. There are many unsettled questions regarding crypto law, and going on the offensive – possibly even bringing a case before the Supreme Court – would be one way to get answers.
...
“Consensys is joining some of the leading companies in the space in a broad industry pushback against regulation by enforcement that is destructive to the future of the internet. This is the responsibility of every Web3 company that has the capital and expertise to navigate the U.S. power structures,” Lex Sokolin, founder of Generative Ventures and a former Consensys employee, told CoinDesk in an interview.
...

More:

Consensys, a Target for the SEC’s Assault on ETH, Is Fighting Back

The Ethereum development company is seeking regulatory clarity on a number of questions, in a case that some experts see as potentially heading to the Supreme Court.

www.coindesk.com

Cyber Wars: The Rebels Strike Back

 

[pmbug]

Lawyer-turned-politician John Deaton further reinforced his credentials as an outspoken crypto ally on Friday, filing a friend-of-the-court brief in Coinbase Inc.'s (COIN) effort to get a higher U.S. court to rule on a central question about when a digital token qualifies as a security.

Deaton, one of several Republican candidates vying for the chance to oppose Sen. Elizabeth Warren (D-Mass.), filed the amicus brief seeking to bolster Coinbase's argument in its fight with the Securities and Exchange Commission (SEC). The exchange filed for a so-called interlocutory appeal earlier this month, seeking permission to get a separate ruling on a narrow legal argument – whether a digital asset transaction that poses no obligation to the original issuer of the asset should be considered an SEC-regulated investment contract.
...

More:

https://www.coindesk.com/policy/2024/04/26/warren-rival-for-senate-race-john-deaton-argues-for-coinbase-in-sec-challenge/

Sen. Warren needs to be retired by the voters, but is it even possible?

Massachusetts Senator Elizabeth Warren faces a new GOP challenger in her campaign for Senate, prompting Boston.com readers to wonder: Could she be ousted by her new opponent?

Republican John Deaton, a former U.S. Marine and cryptocurrency attorney, announced on Monday that he is challenging the incumbent as she runs for her third term in office.

When we asked our readers if they think Deaton could beat Warren in November, more than 500 responded. A majority (57%) said yes, Warren is vulnerable to Deaton in the race. ...

Elizabeth Warren is vulnerable to challenger John Deaton, readers say. Here’s why.

Massachusetts Senator Elizabeth Warren faces a new GOP challenger in her bid for office. Could she be ousted?

www.boston.com

No telling how sound that poll was, but I'd like to think this is possible.

 

[pmbug]

 

[SilverSamurai]

Systems of control
Threatened by technology
Violent results

 

[pmbug]

Missed this one from this past week:

Two lawyers for the U.S. Securities and Exchange Commission (SEC) were forced to resign after a federal judge sanctioned the agency last month for committing a “gross abuse of power” while attempting to secure a temporary restraining order against Utah-based crypto company Debt Box, according to a Monday report from Bloomberg.

Michael Welsh, a former lead attorney on the Debt Box case, and Joseph Watkins, an investigative attorney whose declaration served as the foundation for the SEC’s case against Debt Box, were reportedly forced to step down or else be terminated, according to the report, which cited people familiar with the situation.

A spokesperson for the SEC declined to comment, but an April 15 court filing declared that Welsh “is no longer employed by the Securities and Exchange Commission.” Watkins’ LinkedIn page says he is still employed by the agency.

Last December, U.S. Chief District Judge in the District of Utah Robert Shelby, wrote that he was “concerned the Commission made materially false and misleading representations” in their pursuit of the restraining order that “undermined the integrity of the proceedings.”
...

More:

https://www.msn.com/en-us/money/com...bt-box-sanctions-fiasco-bloomberg/ar-AA1ntbUo

 

[searcher]

US Lawmakers press Biden administration on use of crypto to evade sanctions​

April 29 (Reuters) - Two lawmakers are pressing the Biden administration on the use of cryptocurrency to evade sanctions in Russia, Iran and North Korea, asking officials what additional authorities might be needed to prevent digital assets, such as stablecoin Tether from being used by sanctioned entities in Russia and elsewhere.

More:

https://www.reuters.com/world/us/us-lawmakers-press-biden-administration-use-crypto-evade-sanctions-2024-04-29/

 

[pmbug]

 

[pmbug]

Russia's War on Crypto (bold is mine):

Russia is reportedly preparing to enact a ban on the internal organization of cryptocurrency exchanges. According to statements made by Anatoly Aksakov, Chairman of the Russian Duma for the Financial Market, the ban will be enacted starting on September 1, as part of a bill that regulates the cryptocurrency mining activity in Russia.
...
Furthermore, Aksakov explained that the need for this ban lies in the fact that these assets are quasi-currencies that compete and seek to replace the Russian ruble. “But only the Russian ruble fulfills the mission of a monetary unit, which is why this decision was made,” he stressed.

Aksakov believes that digital financial assets, and not cryptocurrencies, might serve Russia to open financial markets now closed due to economic sanctions. On April 17, he specified that it was “quite possible” that these would become a “serious channel to replace fiat currencies in international transactions.”
...
Bank of Russia Governor Elvira Nabiullina had referred to the use of cryptocurrency for international payments, clarifying these would have to be supported by an experimental regulatory framework. Aksakov said that Bank of Russia’s projects would also be exempted from the law’s action.

Russia to Enact a Ban on Domestic Operations Of Cryptocurrency Exchanges – Regulation Bitcoin News

Russia is preparing to ban the organization of internal cryptocurrency exchanges via the approval of a bill that regulates mining activities.

news.bitcoin.com

They said the quiet part out loud. The government will prohibit the people from building exchanges or infrastructure for using cryoto, but the BoR and government may use crypto for international payments. Do what I say, not as I do.

 

[WinkWink]

 

[Peter89]

Russia's War on Crypto (bold is mine):

Russia to Enact a Ban on Domestic Operations Of Cryptocurrency Exchanges – Regulation Bitcoin News

Russia is preparing to ban the organization of internal cryptocurrency exchanges via the approval of a bill that regulates mining activities.

news.bitcoin.com

They said the quiet part out loud. The government will prohibit the people from building exchanges or infrastructure for using cryoto, but the BoR and government may use crypto for international payments. Do what I say, not as I do.

Cryptos as an investment, ok
Cryptos as currencies, no

 

[pmbug]

Senator Cynthia Lummis, a staunch advocate of cryptocurrency, expressed concern over the Biden administration’s DOJ stance on non-custodial wallet software on May 1, 2024. Senator Lummis articulated her apprehensions through a post on the social media platform X, stating:

I am deeply troubled by the Department of Justice’s hyper-aggressive argument that non-custodial software can constitute a money transmission service. This stance contradicts existing Treasury guidance, common sense and violates the rule of law.

The senator from Wyoming further elaborated that the DOJ’s position jeopardizes fundamental property rights. “Arguments against self-custody software threaten the fundamental property rights that are core to being an American,” Lummis wrote. “I will do everything I can to fight for your rights to hold your own keys and run your own node.”
...

Wyoming Senator Slams DOJ's Take on Non-Custodial Crypto Software, Vows to Protect User Rights – Bitcoin News

Wyoming’s Republican Senator Cynthia Lummis has responded to the DOJ's latest argument regarding non-custodial software.

news.bitcoin.com

Sen. Lummis is one of the few DC critters on the right side of this issue.

 

[pmbug]

...
"Chair Gensler refused to answer questions regarding the SEC's classification of ether," McHenry said in a statement posted on X. "New court filings show this was an intentional attempt to misrepresent the commission's position."
...

https://www.coindesk.com/policy/2024/04/30/houses-mchenry-accuses-sec-chief-gensler-of-misleading-congress-on-ethereum/

Is McHenry going to take any action or just complain on Twitter/X?

 

[pmbug]

... Robinhood, has received a Wells Notice, i.e., it has been formally warned by regulators that it may face an enforcement action tied to its cryptocurrency dealings.

The so-called Wells notice - which gives a company time to rebut the agency’s allegations and doesn’t necessarily indicate an enforcement action will follow - from the SEC concerns Robinhood Crypto and its cryptocurrency listings, custody of cryptocurrencies and platform operations, the company said in a regulatory filing Monday.

The agency’s staff told Robinhood that it made a “preliminary determination” to recommend that the SEC file an enforcement action.

The result could be an injunction, a cease-and-desist order, disgorgement and other penalties or limits on activities, according to the filing. The company was previously subpoenaed and has cooperated with the investigation, Robinhood said.

Dan Gallagher, chief legal, compliance, and corporate affairs officer at Robinhood Markets wrote in a May 6 blog post:

“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business.”

Gallagher added that Robinhood doesn’t see any of its listed assets as securities:
...

More:

Cryptos Dump After Robinhood Reveals SEC Wells Notice Related To Its Crypto Listings | ZeroHedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com

 

[searcher]

The SEC Can’t Stop Suing Crypto Companies​

Robinhood apparently made strenuous efforts to comply with the agency, even applying to become a special purpose crypto broker-dealer. The SEC is likely to sue for alleged securities violations in any case.​

Robinhood is the latest firm to draw the ire of the U.S. Securities and Exchange Commission (SEC). This weekend, it reported receiving a Wells notice – an announcement that the securities watchdog is building a case and intends to sue. In an 8-K filing, the fintech firm revealed it received the letter from the SEC’s enforcement division for alleged securities violations.

At this point, it’s hard to be surprised by the SEC’s anti-crypto actions – shameless though they may be. Apparently, the agency sent the notice after Robinhood cooperated with the SEC’s investigative subpoenas about its crypto operations. A Wells notice is essentially the last chance the accused has to convince regulators that it didn’t break the law, which would be a sign of good faith except that the vast majority of these letters end up in a lawsuit.

More:

https://www.coindesk.com/consensus-magazine/2024/05/06/the-sec-cant-stop-suing-crypto-companies/?utm_medium=referral&utm_source=rss&utm_campaign=headlines